Uncertainty in the Tax System
Ben Franklin had no idea what modern day politics would have in store when he famously proclaimed the only things certain in life were death and taxes. I have felt like a broken record for much of the past few years whenever I get questions about tax rates and policies. Most times I have to make a disclaimer that although this is the current law, we need to wait to see what actions Congress takes.
Legislation in 2001, commonly known as the “Bush tax cuts”, changed many laws affecting both income tax and estate tax. Many of those laws were originally set to sunset at the end of 2010. Congress came to an agreement to extend some laws and change others with only a couple weeks to spare on December 17, 2010. Ultimately, in a move predicted by only a very few individuals, taxpayers ended up with the option to pay no estate tax for descendents in 2010. Many of these laws are set to sunset again at the end of 2012, leaving taxpayers and advisors in a state of flux again.
The American Institute of CPAs is urging lawmakers to make permanent changes to the estate tax rules set to expire at the end of the year. Without permanent changes, it is difficult for taxpayers to plan for the future and is costly to revise estate planning documents each time the tax laws change.
Regardless of the outcome, it’s best to start planning now. If laws are passed very late in the year as in 2010, there may not be enough time to make transfers or set up trusts before the end of the year and you could miss out on some important planning opportunities. Even though uncertainty remains, you and your estate planning advisors can help you develop a plan (and maybe a Plan B and Plan C) that will suit your needs. When laws are passed, you can then implement the plan that best accomplishes your estate planning goals.
Hopefully we will get more certainty soon so that both taxpayers and their advisors will be able to be more confident and be able to move forward in their planning decisions.